27 March 2010

The Politics of a Carbon Tax: Lessons from France

The French government's decision to withdraw its proposed carbon tax last week followed on the heels of a stinging electoral defeat of President Nicolas Sarkozy's UMP party in regional elections. A carbon tax, starting at a low level with proceeds invested in energy innovation, remains a good idea. You'll hear more about this in The Climate Fix. The experience in France confirms lessons already understood about efforts to put a price on carbon. Among them:

2 . An unpopular political party or leader (or both) won't do policy innovation very well.

The French ruling party was trounced in the regional elections, winning in only 1 region. In such a context any policy innovation that they propose will all but certainly be a victim of the political winds of the day. Policy innovation needs to come from a base of political strength -- but also and crucially -- in the context of policies focused on energy innovation need to be politically sustainable over many decades. Hence, they cannot simply be appealing in a particular political context, but must appeal to common interests.

This tax only makes sense if there is an alternative. In my region for example, I calculated that for people who have to drive their car to work every day this tax would have cost over 200 Euros per year. As long as we haven't developed the electric car or public transport a carbon tx is totally unfair and antisocial and its a very good thing it has been withdrawn.

A carbon tax won't succeed politically if it is imposed under a promised of distant and diffuse benefits. It needs to be built upon a platform of innovation which shows immediate benefits. This is another reason for starting small, as any benefits will not result immediately.

It is worth noting that on the left-right political spectrum, Royal -- Sarkozy's once and perhaps future political opponent for President -- is a Socialist and opposed the carbon tax while Sarkozy is center-right and supported it. This suggests that the issues here are less about left-right politics in general than about the policy specifics (and the present unpopularity of the President).

4. Short terms costs must be balanced by short term benefits

Ultimately, for a carbon tax to pass or any effort to put a price on carbon emissions, short term benefits must approximate the short term costs. France saw this calculus fall in the direction of opposing the tax, both politically and in terms of policy. This calculus is the result of failed policy design, not anything inherently wrong with the notion of a carbon tax. Expect to see it proposed again, in France and elsewhere.

A carbon tax remains a good idea. The policy and politics needs some work.